E-commerce a boost for economy in rural areas

KANSAS CITY -- A sagging rural Missouri economy that faces more and more hurdles in today's new business climate may find help in e-commerce.

The idea caught the attention of economists at the Kansas City Federal Reserve Bank's Center for the Study of Rural America, which launched studies on how small outstate communities could gain greater access to the capital, infrastructure and technology needed in a global and instantaneous marketplace.

While startup hurdles are formidable, e-commerce may be the key to overcoming both small-city size and distance.

"Rural businesses are beginning to take advantage of e-commerce," said Jason R. Henderson, who head the rural economy study. "But its full promise remains untapped."

Perhaps the far greater benefit of e-commerce is that it supports business networks. Henderson said that these business networks create economic opportunities that are unavailable to individual firms in rural Missouri.

Most e-commerce is between businesses, when one orders goods or services from another.

As more businesses have embraced the technology, large firms are increasingly outsourcing more assembly functions to networks of supplier firms. While large firms are buying materials electronically, both large and small firms are using e-commerce to sell products.

E-commerce activity involves many industries that do business in rural Missouri. Manufactured e-commerce shipments are concentrated in five manufacturing industries. Food products is the fifth-largest subsector of manufacturing with e-commerce shipments totaling nearly $1 billion in Missouri by 1999. In addition to shipping products electronically, the food industry nationally purchased billions of materials online, making it the sixth most active e-commerce purchasing industry.

The important presence of food products manufacturing firms in the rural economy suggests that many of these businesses should use e-commerce technology, Henderson believes.

Not limited to agriculture

The Federal Reserve economist noted that rural e-commerce activity and network building is not limited to agriculture. As one example, Wallis Oil Co., a small company in Cuba, Mo., reports using a paperless transaction process for receiving, billing and tax reporting for its wholesale fuel business.

The Crawford County firm also adopted an automated system for inventory management and billing, primarily to reduce data entry costs and to improve its accuracy in product transactions.

The study says rural businesses are beginning to tap the benefits of open and closed networks. However, many rural businesses continue to face challenges in taking part in these systems due to the lack of high-speed access, the costs of technology and the lack of local partnerships. Some of the costs can be mitigated by enlisting municipal utility companies to provide broadband services. Rural towns as close as Harlan, Iowa, have overcome this obstacle by building their own fiber optic networks.

Several factors are required to start the development of business network relationships. The presence of a broker and funding support are both necessary in order to bring business owners together and help identify common goals for their network. Assistance can also come from community colleges, extension services, nonprofit groups and trade organizations, with funding available from such sources as public grants and/or private foundations.